Women take the lead opening JISAs

Have you opened a Junior Individual Savings Account (JISA) for your child? If so, it’s a great financial priority to support long-term savings goals for the children in your family. Research has highlighted that women have led the way on opening JISAs every year since 2019, when the data was first analysed. 

Despite the gender pay gap, women have surpassed their male counterparts by over 9% when opening these products. Analysis1 of investment trends in the last five years shows the number of JISAs women have opened is up 128%, compared with an uptick of 101% by men. One fifth of UK women said their highest priority future financial goal is saving for their child or grandchild, with 15% of men ranking this a priority for them. 

The analysis also shows ‘new JISA sales were up in every region of the UK, since 2019, with northern regions of the UK largely leading the charge.’ It was Scotland that led the way, with an increase of 225% in the last five years, followed by the East Midlands and North West, seeing increases of 153% and 117% respectively. However, the amount being saved has reduced over the period, likely due to the pandemic and cost-of-living pressures more recently. 

Commenting on the data, Scottish Friendly’s, Jill Mackay, said “It’s positive to see that parents and guardians are prioritising saving for children as part of their long-term financial goals… Being able to set aside a lot of money may not be an option with day-to-day financial demands as they are. But starting as soon as possible and just putting a little away into a stocks and shares JISA could build to be a substantial amount over time.” 

1Scottish Friendly, 2024 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. 

Proportion of cash homebuyers reaches 10-year high

The proportion of homebuyers choosing to pay in cash has hit a 10-year high1, analysis has found. 

In 2023, cash buyers were responsible for a third (34.5%) of all property transactions – the highest percentage seen since data became available in 2013. This trend carried on into this year, as 32.8% of market activity was attributed to cash buyers in the first two months of 2024. This is a higher proportion than we have seen in recent years, with cash buyers accounting for less than 29% of market activity during 2019–2022. The increase is likely to be due to the higher cost of borrowing, which continues to put a strain on affordability for those purchasing a home with a mortgage. 

Verona Frankish, CEO of online estate agents Yopa, commented, “Not only is it far tougher for those looking to purchase with the aid of a mortgage, but as a result, cash buyers are in a far stronger position within the market making them the first choice for many sellers.” 

It is likely that the balance of cash and mortgage buyers will be redressed when mortgage affordability improves. 

1Yopa, 2024 

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments. 

Steady growth in an uncertain world

Reassuringly for investors, the latest batch of projections from economic soothsayers continues to predict a period of steady, if unspectacular, global growth. The forecasts also highlight a number of economic concerns including ‘sticky’ inflation, large budget deficits and geopolitical uncertainties, which could inevitably create some investment challenges. 

Growth rates beat expectations 

Economic growth figures released over the summer generally proved stronger than analysts had expected, particularly in relation to Europe and the US (in Q2). And while economic momentum is expected to soften across the second half of this year, forecasters are still predicting steady rates of growth. The latest figures from the International Monetary Fund (IMF), for instance, forecast global growth of 3.2% for the whole of 2024 with the rate rising slightly to 3.3% next year. 

Inflation persistency 

The IMF’s musings were contained in a report entitled ‘The Global Economy in a Sticky Spot,’ which highlighted two prominent near-term risks currently undermining growth prospects. Firstly, the IMF warned that ‘services inflation is holding up progress on disinflation’ which could result in interest rates remaining ‘higher for even longer.’ Secondly, a deterioration in public finances has left many countries in a position of fiscal vulnerability and this is ‘magnifying economic policy uncertainty.’ 

Geopolitical uncertainties 

In what was dubbed ‘the year of the election’, geopolitical uncertainties unsurprisingly continue to be a key concern as well. Indeed, their impact on global growth prospects can only be expected to rise in the near-term as the US presidential election looms ever closer. Continuing geopolitical conflicts and the rise in geoeconomic competition is also creating ongoing challenges for the global economy. 

Elements at play 

Economic resilience has flowed through to central bank monetary policy as global institutions have largely adopted a cautious approach. Slower but still positive growth, lower inflation and interest rate reductions are a positive combination for investors. 

Whatever uncertainties do lie ahead, one investment fundamental remains constant: long-term investors are best served by holding a well-diversified, multi-asset portfolio based on sound financial planning principles and thorough research. We’ll help ensure your portfolio remains well-balanced and with the right mix of assets; we’re always focused on finding investment opportunities. 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.  

News in Review

“Geopolitical concerns are very serious” 

Last Thursday, Bank of England (BoE) Governor Andrew Bailey spoke in an interview about the pace at which interest rates are being cut. With two more Monetary Policy Committee (MPC) meetings this year, the Governor said the Bank could afford to be “a bit more aggressive” with its rate reduction approach, while acknowledging inflation as a key factor in the equation.  

With inflation just above the BoE’s target of 2%, although Mr Bailey was optimistic borrowing costs will continue on a downward trajectory, he did caution that inflation remaining low is “vital” to support this.  

Paying close attention to developments in the Middle East, the Governor spoke about the potential impact on oil prices, which could fuel inflation if supply becomes disrupted. After acknowledging the tragedy of the unfolding situation in the region, he said, “Geopolitical concerns are very serious… There are obviously stresses and the real issue then is how they might interact with some still quite stretched markets in places.” He added that, following interactions with counterparts in the region, at present there appears to be a “strong commitment to keep the market stable.” 

As the weeks tick down to the widely anticipated Autumn Budget on 30 October, Mr Bailey spoke about the key structural issues impacting the UK (specifically an ageing population, climate change and defence spending), and that the focus of the government on capital investment is the right approach, “There is a clear need for it in terms of infrastructure.” 

Manufacturing boost but business confidence slumps 

Production volumes in the UK’s manufacturing sector experienced a ‘solid increase’ in September, according to the latest S&P Global UK Manufacturing Purchasing Managers’ Index (PMI) released last week. 

With a headline reading of 51.5 putting volumes above the neutral 50.0 mark for the fifth successive month, the UK manufacturing sector is continuing its solid performance in 2024, managers concurred. Figures for output, new orders and suppliers’ delivery times all rose in September, along with consumer and intermediate goods sectors. 

Two other sub-components performed less well, however, with small drops for levels of employment and stocks of purchases. Perhaps more significantly, the survey also showed that business optimism had fallen to a nine-month low in September, as companies saw the biggest decline in sentiment about the year ahead since March 2020. 

Commenting on the data, Rob Dobson, Director at S&P Global Market Intelligence, said, “Uncertainty about the direction of government policy ahead of the coming Autumn Budget was a clear cause of the loss of confidence, especially given recent gloomy messaging, though firms are also worried about wider global geopolitical issues and economic growth risks.” 

Mixed signals from business barometer  

Broader business confidence also took a downwards turn in September, the release of the latest Lloyds Bank Business Barometer revealed last week. Confidence dipped to a three-month low in September, falling three points to settle at 47%. 

Analysts noted, however, that despite dipping, this latest reading is considerably higher than the long-term average of 29%. Furthermore, some 63% of businesses now anticipate stronger output. “Although overall confidence fell this month, that fall was from a nine-year high and businesses remain positive about their own trading prospects,” commented Hann-Ju Ho, Senior Economist at Lloyds Bank Commercial Banking. 

Deposits rise as rate cuts expected 

With rate cuts on the horizon, data from the BoE’s latest Money and Credit report showed that households increased their deposits into banks and building societies by £7.3bn in August, well above the £5.9bn recorded a month earlier. An additional £4.4bn was placed into instant access accounts paying interest, while ISAs received deposits worth £4.2bn. Interest rates for savers have been falling since August when the MPC cut Bank Rate for the first time since 2020; the effective interest rate paid on individuals’ new deposits fell to 4.37% in August. 

Eurozone inflation falls below 2% 

Meanwhile in Europe, consumer price inflation fell below 2% for the first time since July 2021, official figures revealed last week. Eurozone inflation dropped to 1.8% in September, piling pressure on the European Central Bank (ECB) to make its third interest rate cut in four months. 

Here to help 

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have. 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. 

All details are correct at time of writing (9 October 2024) 

Autumn housing market outlook 

The summer was largely positive for the housing market due to a boost in confidence following the General Election and the reduction to Bank Rate. So, where are we now and what does the autumn have in store? 

Lenders and buyers alike were already showing signs of confidence before the election, as mortgage approvals steadily improved. 

Post-election boom 

After the election, there was a noticeable uptick in buyer and seller confidence. In July, new instructions were 7% higher than the 2017-2019 average for the month, sales agreed were up 10%1, while buyer enquiries were up 11% year-on-year2. Overall, this boost in activity had a positive impact on house prices, which continued to grow modestly. The post-election buzz was boosted further in August by the first reduction to Bank Rate since 2020. 

Rental inflation slowing 

Data suggests that we have moved past peak rental inflation, with rents rising at the slowest rate since 20213. If rents continue to increase at the rate they are now, they will have gone up by 3-4% in 2024 – an improvement on the 8% and 11% seen in 2023 and 2022 respectively. 

What does the autumn hold?  

Rightmove’s property expert, Tim Bannister, observed, “the conditions are there for a more active autumn market.” They predict that, by the end of 2024, house prices will be 1% higher than they were the previous year. Meanwhile, Zoopla expects mortgage rates to stay around 4-4.5% for the rest of 2024. It is thought that wages will keep rising while house prices remain consistent, thus improving buyer affordability. 

2025 and beyond 

Looking ahead, experts predict the market to continue a slow but steady recovery. Zoopla’s Executive Director of Research, Richard Donnell, commented, “Economists currently expect base rates to fall to 3.5% by the end of 2025, which would imply mortgage rates remaining in and around the 4%+ range.” 

In terms of broader trends, it is expected that energy efficient homes and houses located in close proximity to public transport will continue to be highly sought after, and a focus on employment flexibility widens the net in terms of where people are looking to move and achieve the quality of life they want. 

1TwentyCI, 2024 

2Rightmove, 2024 

3Zoopla, 2024 

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments. 

Autumn retirement round-up

Several retirement reports have hit the headlines recently with a consistent message: if you want a comfortable retirement, you should plan early and be flexible. 

Could a phased retirement approach work for you? 

Research from Standard Life1 suggests a ‘gradual transition’ into retirement could be one of the best ways to boost your pension pot. It suggests that continuing to work part-time or taking on freelance projects can help to maintain a steady income stream as your pension continues to grow. In fact, the company’s analysis demonstrates that working three days a week from age 66 to 70 could add an extra £97,000 to a pension pot. This approach also means the opportunity to explore new interests or volunteer work before fully committing to retirement. 

More Britons facing a retirement shortfall  

Unfortunately, the retirement picture isn’t entirely rosy. According to Scottish Widows’ annual retirement report2, a significant portion of the population (38%, up from 35% last year) are not saving enough for a comfortable retirement. 

The report also found 54% of UK retirees expect to work an extra seven years on average, while 27% who have made retirement plans don’t feel they will ever be able to afford them. This shortfall is being worsened by rising living costs and stagnant wage growth. 

Flexibility is key 

One recurring theme in most retirement research is the need for flexibility. Having options in how you access and manage your pension can be crucial. Whether it’s phasing your retirement or adjusting your income based on the prevailing market conditions, being flexible in your approach and income needs could help you adapt to life’s uncertainties. 

Don’t leave retirement planning too late  

While it’s concerning to hear of people having retirement regrets, it’s important not to ignore the issue and instead do something about it when you can. As we enter autumn, now might be the ideal time to refresh your retirement plan and make sure you feel on track and well-prepared for the years ahead. Retirement is a time to thrive, not count the pennies. 

1Standard Life, 2024 

2Scottish Widows, 2024 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. 

Economic Review – September 2024 

UK economic growth forecast upgraded 

An updated forecast published last month by the Organisation for Economic Co-operation and Development (OECD) suggests the UK will be the joint-second fastest growing economy among the G7 nations this year.  

According to the OECD’s latest projections, the UK economy is set to expand by 1.1% across the whole of 2024, a significant upgrade from the think tank’s previous estimate of 0.4% which was released in May. The new forecast places the UK alongside Canada and France in the G7 rankings, with only the US economy forecast to grow more strongly this year. 

Gross domestic product (GDP) statistics released last month by the Office for National Statistics (ONS), however, did show that the UK economy unexpectedly failed to grow during July, after also flatlining in June. Despite the lack of growth across both of these months, ONS did note that ‘longer term strength in the services sector’ had resulted in some growth across the economy during the three months to July as a whole. 

Data from the latest S&P Global/CIPS UK Purchasing Managers’ Index (PMI) also suggests growth across the UK private sector has softened more recently, with its preliminary headline indicator standing at 52.9 in September, down from August’s figure of 53.8. This does, however, mean that for the eleventh consecutive month, the Index remained above the 50 threshold that denotes expansion in private sector output. 

Commenting on the findings, S&P Global Market Intelligence’s Chief Business Economist Chris Williamson acknowledged that the latest data did suggest output growth in both manufacturing and services had moderated last month. He added, “A slight cooling of output growth across manufacturing and services in September should not be seen as too concerning, as the survey data are still consistent with the economy growing at a rate approaching 0.3% in the third quarter.”  

Interest rates set to gradually head lower 

While last month did see the Bank of England (BoE) maintain interest rates at their current level of 5%, the Bank’s Governor Andrew Bailey also stated his optimism that rates are now on a downward path. 

At its latest meeting, which concluded on 18 September, the BoE’s Monetary Policy Committee (MPC) voted by an 8–1 majority to leave Bank Rate on hold. The one dissenting voice voted for what would have been a second successive quarter-point cut following the committee’s decision to reduce rates in early August, the first reduction since 2020. 

The minutes to the meeting, however, did strike a fairly cautious note. They stated that the decision to hold rates was ‘guided by the need to squeeze persistent inflationary pressures’ out of the economy and that monetary policy would need to ‘remain restrictive’ until the risks to inflation have ‘dissipated further.’ 

On the same day the MPC meeting ended, ONS published the latest inflation data, which revealed that August’s headline annual rate was unchanged at 2.2%. Although this did mean the rate therefore remained marginally ahead of the BoE’s 2% target level, the figure was exactly in line with analysts’ expectations. 

Speaking a few days after the inflation figures were released, the BoE Governor said he was “very encouraged” by the downward path of inflation over the past two years and that the Bank should be able to reduce rates as it becomes more confident inflation will remain close to target. Mr Bailey concluded, “I do think the path for interest rates will be downwards, gradually.” 

A Reuters poll released last month also revealed that most economists expect one more rate cut this year, with a large majority predicting the BoE will sanction a reduction after the MPC’s next meeting, which is scheduled for 7 November. 

Markets (Data compiled by TOMD) 

An escalation of the conflict in the Middle East weighed on markets at the end of September, with investors and traders closely monitoring developments in the region.  

At month end, stocks retreated following implications from Federal Reserve Chairman Jerome Powell that further interest rate cuts are likely to occur at a more measured pace. 

Across the pond, the Dow Jones closed the month up 1.85% on 42,330.15. The tech-orientated NASDAQ closed the month up 2.68% on 18,189.17. 

On home shores, the FTSE 100 index closed the month on 8,236.95, a loss of 1.67%, while the FTSE 250 closed the month 0.16% lower on 21,053.19. The FTSE AIM closed on 740.43, a loss of 4.15% in the month. The Euro Stoxx 50 closed the month on 5,000.45, up 0.86%. In Japan, the Nikkei 225 closed September on 37,919.55, a monthly loss of 1.88%.  

On the foreign exchanges, the euro closed the month at €1.20 against sterling. The US dollar closed at $1.33 against sterling and at $1.11 against the euro.  

Brent crude closed September trading at $71.65 a barrel, a loss over the month of 6.74%. The conflict in the Middle East is causing some price volatility. OPEC+ plans to begin increasing production in December is pressurising prices, while weak demand in China also weighs. Gold closed the month trading at $2,629.95 a troy ounce, a monthly gain of 4.64%. Prices retreated at month end, reversing recent strong gains as increased safe-haven demand prompted a rally in the precious metal.  

Retail sales stronger than expected 

The latest official retail sales statistics revealed a healthy growth in sales volumes during August, while more recent survey data points to further modest improvement both last month and in October. 

Figures released by ONS showed that total retail sales volumes rose by 1.0% in August, following upwardly revised monthly growth of 0.7% in July. ONS reported that August’s rise, which was higher than economists had predicted, was boosted by warmer weather and end-of-season sales.  

Evidence from last month’s CBI Distributive Trades Survey also suggests retailers expect the summer sales improvement to have continued into the autumn period, with its annual retail sales gauge rising to +4 in September from -27 in August. In addition, retailers’ expectations for sales in the month ahead (October) rose to +5; this represents the strongest response to this question since April 2023. 

CBI Principal Economist Martin Sartorius said retailers would “welcome” the modest sales growth reported in the latest survey. He also added a note of caution saying, “While some firms within the retail sector are beginning to see tailwinds from rising household incomes, others report that consumer spending habits are still being affected by the increase in prices over the last few years.” 

National debt looks set to soar 

Analysis published last month by the Office for Budget Responsibility (OBR) suggests national debt could triple over the coming decades if future governments take no action.  

In its latest Fiscal Risks and Sustainability Report, the OBR said debt is currently on course to rise from almost 100% of annual GDP to 274% of GDP over the next 50 years due to pressures including an ageing population, climate change and geopolitical risks. It also warned that, without any change in policy or a return to post-war productivity levels, the public finances were unsustainable over the long term, and that ‘something’s got to give.’ 

The OBR is also tasked with producing a more detailed five-year outlook for the country’s finances that will be published alongside Chancellor Rachel Reeves’ first Budget, due to be delivered on 30 October. The Chancellor has previously warned the Budget will involve “difficult decisions” on tax, spending and welfare. 

Data released last month by ONS showed that government borrowing in August totalled £13.7bn, the highest figure for that month since 2021. This took borrowing in the first five months of the financial year to £64.1bn, £6bn higher than the OBR forecast at the last Budget. 

All details are correct at the time of writing (1 October 2024) 

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission. 

News in Review

‘The global economy is starting to turn the corner’ 

Last week the Organisation for Economic Co-operation and Development (OECD) released its latest forecast, which outlines global growth prospects of 3.2% both this year and next. In its interim economic outlook, the well renowned think tank concluded, ‘The global economy is turning the corner as growth remained resilient through the first half of 2024, with declining inflation.’  

There are expectations that inflation will align with central bank targets in the majority of G20 economies by the end of next year. Easing to 2.7% this year, core inflation in G20 advanced economies, is expected to temper to 2.1% in 2025. 

With robust trade growth evident, inflation easing and an uptick in accommodative monetary policy in many regions, prospects are improving. Mathias Cormann, Secretary-General of the OECD, commented on the latest findings, “At 3.2%, we expect global growth to remain resilient both in 2024 and 2025. Declining inflation provides room for an easing of interest rates, though monetary policy should remain prudent until inflation has returned to central bank targets.” 

He continued, “Decisive policy action is needed to rebuild fiscal space by improving spending efficiency, reallocating spending to areas that better support opportunities and growth, and optimising tax revenues. To raise medium-term growth prospects, we need to reinvigorate the pace of structural reforms, including through pro-competition policies, for example by reducing regulatory barriers in services and network sectors.” 

The OECD did caution that ‘significant risks remain,’ specifically geopolitical tensions in the Middle East and the Russia / Ukraine conflict, which could cause another uptick in inflation, impacting global activity.  In addition, the potential impact of tighter monetary policy. Meanwhile, growth in real wages could support consumer spending and confidence. 

From a regional perspective, for the world’s largest economy, GDP growth in the US is expected to temper from 2.6% this year, to 1.5% in 2025. In China, restrained consumer demand and the continuing correction in the real estate sector are expected to cause an easing in growth from 4.9% this year to 4.5% next year. GDP in the euro area is predicted to pick up to 1.3% in 2025, from 0.7% this year due to recovery in real incomes and credit availability.  

UK growth expectations 

On home shores, the OECD upgraded UK GDP growth expectations from 0.4% and 1.0%, to 1.1% in 2024 and 1.2% in 2025. The upward revision places Britain’s growth rate close to most other Group of Seven (G7) countries this year and next. UK consumer prices are predicted to increase by 2.7% this year and 2.4% next, a faster rate than other G7 nations. Chancellor Rachel Reeves, commented on the data, “Faster economic growth figures are welcomed, but I know there is more to do and that is why economic growth is the number one mission of this government.” 

The latest GDP data released from the Office for National Statistics (ONS) on Monday showed the UK economy grew less than previously estimated in Q2. The economy expanded by 0.5%, down from an initial estimate of 0.6%, as construction and manufacturing output fell more than expected.  

Average household income continues downward trend 

New data has shown a decline in UK disposable household income. For 2023, the median household figure is £34,500, a 2.5% reduction on the previous year, according to ONS. For the richest fifth of households, the disposable income decreased by 4.9% to £68,400, over 4% below pre-pandemic levels. Meanwhile, for the poorest fifth of the population, household disposable income increased by 2.3% in 2023 to £16,400. This can be partly attributed to government cost of living support measures. 

Car production – “the sector remains optimistic about a return to growth” 

According to the latest car statistics from the Society of Motor Manufacturers and Traders (SMMT), during the month of August, UK car production fell by 8.4%. Typically, a lower output month due to summer shutdowns, the reduction equated to 3,781 less units, with a total of 41,271 new cars being manufactured in the month. As factories reduce production of key models and retool for electric vehicle production, the decline in August is a continuing trend. 

With record levels of investment in UK auto manufacturing announced last year, Mike Hawes, SMMT Chief Executive, looks ahead, “The sector remains optimistic about a return to growth… Realising those investments and securing more depends on the UK industry maintaining its competitiveness so we look forward both to the Chancellor’s Autumn Budget and the government’s proposed Industrial Strategy as critical opportunities to demonstrate that it backs auto.” 

Here to help 

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have. 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. All details are correct at time of writing (2 October 2024) 

Financial considerations delaying divorce 

New research1 has found that one in ten married people in the UK have considered splitting up but decided against it, with the financial burden of divorce most commonly given as the main reason. 

A challenging time 

While respondents to the survey did cite other reasons for not divorcing a partner, for instance the effect it would have on their children, money was mentioned most often as the decisive factor. In essence, the research suggests that a significant proportion of people who are considering divorce decide they simply cannot afford to do so, instead preferring to stick with their partner and work on their relationship rather than having to face the financial consequences of splitting up. 

Costs of living alone 

The decision to go it alone and commit to financial independence does certainly come with significant cost implications, with people living on their own having to shoulder the full burden of all household bills. This will inevitably have a big impact on retirement plans, with analysis2 suggesting that, in order to fund a moderate standard of living in retirement, a single person would need around £275k more in their pension pot than a pensioner couple. 

Financial advice is key 

It is therefore vital that any couples considering divorce take expert advice. While for many people this involves consulting a solicitor, potential divorcees also need to seek financial advice. 

If you need any advice in this area, then please do not hesitate to get in touch – we’re always here to offer our help and support. 

1Investec, 2024, 2Standard Life, 2024 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. 

News in Review

“Inflation held steady in August as various price fluctuations offset each other” 

Last week, the latest UK inflation data for August came in as anticipated at 2.2%, still marginally above the Bank of England’s (BoE’s) target level of 2%. The rate, published by the Office for National Statistics (ONS), was unchanged from July. 

Services inflation, which is an indicator of domestic price pressures, rose sharply to 5.6% from 5.2% in July. A Reuters poll had predicted a smaller rise to 5.5%. One factor behind this increase was a 22.2% jump in air fares between July and August; although a rise is normally expected at that time of year, ONS said the jump was the second largest since records began in 2001. 

Chief Economist at ONS, Grant Fitzner, commented, “Inflation held steady in August as various price fluctuations offset each other… The main movements came from air fares, in particular to European destinations, which showed a large monthly rise, following a fall this time last year. This was offset by lower prices at the pump as well as falling costs at restaurants and hotels.” 

Bank Rate held firm 

On Thursday, the BoE’s Monetary Policy Committee (MPC) voted to retain Bank Rate at 5%, as widely expected. The MPC voted by a majority of 8-1 to maintain Bank Rate, with one committee member favouring a reduction of 0.25 percentage points to 4.75%.  BoE Governor, Andrew Bailey, said that cooling inflation pressure will mean the Bank should be able to cut interest rates gradually over the upcoming months, adding, “it’s vital that inflation stays low, so we need to be careful not to cut too fast or by too much.” 

The MPC minutes alluded to a likely rate cut after the Budget in the autumn, stating, ‘Bank Rate expectations implied by market pricing… suggest that the next 25 basis point cut would occur in November. That was consistent with the Bank’s latest Market Participants Survey (MaPS).’  

Looking ahead, the BoE predicts GDP growth of 0.3% in Q3, with new analysis indicating that the combination of ‘improving real incomes, the August Bank Rate reduction and anticipated further cuts in interest rates have underpinned improved sentiment and expectations of increased activity across most sectors around the turn of the year.’ The next MPC meeting will conclude on 7 November. 

And in the US… 

The Federal Reserve announced a 50-basis point cut to its benchmark interest rate last week. The Central Bank’s federal funds rate is now in a range of 4.75% to 5%. This was the first cut in four years and now that inflation is back down to 2.5%, the lowest level for over three years, the Central Bank intends to focus on the ailing labour market. Exchange rates for GBP/USD hit a fresh two year high after the announcement.  

Following the rate cut, Fed Chair Jerome Powell said the labour market and the economy are in “solid shape” and after making the larger than expected interest rate cut, he said, “our intention is to keep it there.” The decision will have an impact all around the world for nations and companies whose debts are priced in dollars. 

Government borrowing highest since pandemic 

Government borrowing in August rose to the highest level for the month since the pandemic in 2021. ONS data, released on Friday, showed that borrowing – the difference between spending and tax revenue – reached £13.7bn in August, which is £3.3bn more than in August last year. 

“No return to austerity” 

At the Labour Party conference on Monday, Chancellor Rachel Reeves delivered a speech, lasting for around 45 minutes, in which she criticised the so-called “black hole” she inherited from the Tories. She called Labour the “party of economic responsibility” as she promised not to take risks with taxpayers’ money, adding “Because I know how much damage has been done in those years […] there will be no return to austerity.”  

Repeating the line “that’s the Britain we’re building“, Reeves promised an end to easy answers and said Labour will always stand with working people, saying “We do not have to choose between a fair society and a strong economy.” 

Here to help 

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have. 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. 

All details are correct at time of writing (25 September 2024)